Proposed 1% surcharge to make Mumbai properties more unaffordable

MUMBAI: The proposed levy of 1% surcharge by Municial Corporation of Greater Mumbai (MCGM) on all property transactions in Mumbai is likely to make houses in the country's most expensive property market more unaffordable, a move that is likely to face lot of resistance from various associations of homebuyers and also developers who are trying hard to sell their inventories.

“It will only make the properties more unaffordable. As such, there are limited deals taking place and the proposed surcharge will prove to be counter-productive, as it will dissuade prospective homebuyers further. If the numbers of transaction go down, tax collections will also fall,“ said Pankaj Kapoor, MD, Liases & Foras Real Estate Rating & Research.

Given the steep property prices, sale of residential flats in Mumbai has been slow for the past three years. Currently , Mumbai property market has over 80 months of residential units' inventory yet to be sold at prevailing market prices. “The following taxes can be re covered by the municipal corporation like property tax, tax on dogs, theatre tax and octroi.Property tax comprises other things like benefit tax for water and sewerage, general tax, etc.The question that begs to be answered is do they need to collect more? If there is indeed a need, then first it should be applied to commercial and permitted industrial establishments within the jurisdiction of the municipality and residential segment and the common man should not suffer the burden,“ said Sudip Mullick, Partner at law firm Khaitan & Co.

Realty developers are of the view that the sector is one of the highly-taxed sector and such Research proposals are not in sync with the government's vision of providing housing for all.

“There's a dichotomy -on one hand, the government wants prices to come down and provide housing for all, while on the other, it is increasing taxes, levies and various rates including ready reckoners,“ said Niranjan Hiranandani, president, NAREDCO-West.The proposed levy may result in additional burden on homebuyers, and therefore, many transactions are likely to be cancelled or kept on hold.

“The government automatically becomes a party in profit when any property transaction takes place as homebuyers pay 8-10% of the apartment value as taxes. Any new tax will be an additional burden for homebuyers in Mumbai. Property values in Mumbai are one of the highest in the world,“ said advocate Vinod Sampat.